Whistleblower Program To Open Up Global Bribery Enforcement

When the Securities and Exchange Commission meets next week to discuss potential rules to govern a controversial whistleblower bounty program, it will embark on a journey that lawyers and experts expect to culminate in the single-largest development in anti-bribery enforcement in recent memory.

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Under the program, whistleblowers who report “original” information to the SEC about suspected securities violations can earn 10% to 30% of monetary sanctions of at least $1 million obtained by the commission.

The commission said in a notice in the Federal Register that it will “consider whether to propose rules and forms” to implement the provision, which was coiled in the Dodd-Frank Act, at an open meeting on Nov. 3.

Many experts expect the new program to fundamentally change the enforcement landscape, particularly in foreign bribery cases, which routinely end in settlements of tens of millions of dollars.

Companies and defense lawyers have expressed concern that the program will undermine internal efforts to detect and fix compliance problems by giving employees huge incentive to report possible wrongdoing to regulators rather than internally. Companies that unearth potential violations of the Foreign Corrupt Practices Act and report them to the Justice Department and the SEC can earn cooperation credit.

Because there is no citizenship requirement in the law, foreign whistleblowers also stand to share in large bounties. That’s doubly disturbing to some companies, but for regulators it means potentially easier access to evidence and not having to rely on companies self-reporting bribery.

“Before the whistleblower provision, a corporate defendant may have believed, perhaps rightly, that the government would have great difficulty investigating and trying a case when documents and witnesses were out of reach in far flung places,” said John “Jay” Darden, a partner at Patton Boggs LLP in Washington and a former assistant chief in the Fraud Section of the Justice Department’s Criminal Division. “Now, with the whistleblower bounty, those witnesses are incentivized to come forward, thereby making the government’s job easier. A corporation now has to factor that possibility into its decision to self-disclose and cooperate.”

Some have proposed that the SEC curb awards to corporate whistleblowers who divulge information to the government before reporting alleged wrongdoing within their company.

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